'All sizzle and no steak': Trump just claimed a win after striking a deal with Pfizer, but it could have zero impact on prescription drug costs

President Donald Trump has been making a stink about drug prices, claiming a win Tuesday night when Pfizer deferred its plan to increase the prices of 10% of its medications.

But it remains to be seen how Pfizer’s move will impact patients still facing high prescription drug costs.

Here’s all that goes into the price patients are paying when they get to the pharmacy counter.

President Donald Trump is on a crusade to lower prescription drug prices.

In May, the Trump administration laid out a 44-page drug-pricing blueprint, calling out middlemen in the pharmaceutical industry and “freeloading” by other countries that pay less than the US for prescription drugs.

That came to a head on Tuesday when New York-based pharmaceutical giant Pfizer said that it’s deferring the price increases it planned to take on some of its prescription drugs following a conversation between its CEO Ian Read and Trump.

“Pfizer & others should be ashamed that they have raised drug prices for no reason,” Trump said in an initial tweet.

Pfizer will now return its drugs to their initial price before July 1. Trump broadcast the move in a tweet, in which he characterised it as “rolling back price hikes, so American patients don’t pay more.”

But it begs the question: how will American patients benefit from this?

To start, Pfizer’s move on Tuesday was todefer=”defer”its planned price increases, not cancel them altogether. Should the Trump administration fail to get its drug-pricing plan off the ground by the end of the year, Pfizer will go ahead and increase the prices of the drugs.

“The company will return these prices to their pre-July 1 levels as soon as technically possible, and the prices will remain in effect until the earlier of when the president’s blueprint goes into effect or the end of the year – whichever is sooner,” Pfizer said in a statement.

Analysts, for their part, didn’t see this decision as having much of an impact on Pfizer’s overall business, especially because the increases weren’t very big – though analysts at Morgan Stanley did call the decision todefer=”defer”the price hike as “surprising.”

And, as Wells Fargo analyst David Maris noted, Pfizer’s move could impact what happens to other drugmakers’ price increases.

“For example, will Merck’s Keytruda price increase from March or AbbVie’s Humira’s 19% price increase over the past two years be next? And what did Pharma get in exchange for this Trump win?” Maris wrote Wednesday. “To us, we believe the administration’s and other key legislators’ focus is not only on drug pricing, but on the overall supply chain and delivery system, including drug rebating, co-pay coupons, etc.”

But as a whole – especially for patients who might need reprieve from high prices – there’s scepticism about the impact Pfizer’s decision todefer=”defer”will have.

“It’s all sizzle and no steak,” Craig Garthwaite a professor of strategy at the Kellogg School of Management at Northwestern University told Business Insider.

Americans are facing high prescription drug prices, and the list price a drugmaker sets is just one component of a complicated system in which a handful of companies are involved.

In fact, as many as five different companies influence the price of a medication from start to finish.

Shayanne Gal/BI Graphics

It begins with the drugmaker who sets the initial price of the medication. From there, a wholesaler responsible for distributing the drug to hospitals and pharmacies gets a cut of the price for its services.

The pharmacy provides the drug to patients for a certain amount based on factors such as what insurance the patient has or how far along that person is towards hitting their deductible, the amount of money paid out of pocket before insurance kicks in.

Afterward, a pharmacy benefit manager, which is responsible for negotiating lower drug prices and managing the pharmacy networks, pays back the rest of the medication’s cost, ultimately getting reimbursed by an insurer.

Does it have to be this way?

Unless a patient isn’t insured or hasn’t hit their deductible, they won’t face the full list price. In response to pricing criticism, drug companies have started breaking out how much their prices have increased at a list and net level, after factoring in rebates and discounts. For example, the list prices of diabetes medication insulin have been increasing, but at a net level – the amount drugmakers actually take home – prices have fallen.

It’s led to drug companies and pharmaceutical benefit managers pointing fingers at one another to assign blame for why Americans are experiencing high drug prices.

“We’re living in a world where financial toxicity is a real concern for patients. And every member of the drug supply chain needs to take responsibility for addressing it,” he said.

One of the solutions: passing rebates along straight to patients.

In March, the biggest health insurer in the US, UnitedHealthcare, said that starting in 2019, some of its members on high deductible plans would be eligible to get rebates for their medications. So, for example, if a patient went to the pharmacy for a medication that under their high deductible cost $US600, that might get lowered to $US300 after factoring in the rebate the insurer receives. Gottlieb on Wednesday called the move a “potentially disruptive step.”

Trump also singled out the middlemen in the pharmaceutical industry, including pharmacy benefit mangers that negotiate lower prices from drugmakers in the form of discounts and health plans that receive those discounts.

“We’re very much eliminating the middlemen,” Trump said. “They became very, very rich. They won’t be so rich anymore.”

Ultimately, Pfizer’s decision todefer=”defer”its price increases could end up have little impact on ordinary Americans. January 1, 2019 could roll around, and if Trump’s blueprint is in place, those prices could keep going up, leaving consumers in the same spot they are right now. And so far, seeing others be singled out in a tweet hasn’t stopped drugmakers from increasing the prices of their own medications.